Jakarta. Rupiah closed stronger on Monday but is set to reverse course as escalating Middle East tensions and an oil price shock weigh on sentiment.

The Indonesian currency gained 21 points to Rp 17,168 per US dollar on Monday’s close, after briefly strengthening by 25 points from its previous level of Rp 17,188.

Ibrahim Assuaibi, director at Traze Andalan Futures, said the rupiah’s appreciation was driven by two main factors. First, guidance from the International Monetary Fund (IMF), which advised Indonesia to hold off on interest rate hikes despite elevated inflation stemming from the Middle East conflict. Second, the recent increase in non-subsidized fuel prices, which has influenced domestic market dynamics.

“On Tuesday, the rupiah is expected to move fluctuatively but close weaker in the range of Rp 17,160 to Rp 17,200,” Ibrahim said in a statement on Monday.

He warned that the rupiah’s outlook remains under pressure after the Strait of Hormuz was shut again, following renewed accusations between the United States and Iran of breaching a ceasefire agreement.

The currency is also likely to weaken further as global oil prices surge.

“Oil prices jumped by as much as 7 percent on Monday, keeping markets on edge due to the inflationary impact of the Iran conflict. Energy-driven inflation concerns have been a major drag on metal prices since the conflict began in late February,” Ibrahim said.

“Moreover, these renewed tensions have significantly shifted expectations for US rate cuts this year toward a ‘higher for longer’ stance, as inflation remains elevated due to high energy prices and geopolitical instability in the Middle East,” he added.